I work at a debt fund, and we are beginning to get asked more and more how we are financing our position when we provide a quote. Obviously a lot of lenders have gone the CLO route in the last year or so (my firm hasn't), which has had a clear impact in lowering the cost of capital/spreads that they can offer.
What I've been hearing is that there are borrowers who have had their loans securitized that are now having issues with the post-close loan servicing and asset management process, and the far more rigid AM structure that the securitization process puts on them.
Any borrowers or lenders out there have any thoughts or feedback on this? Would be interested to hear if anyone is specifically avoiding CLO execution/accepting higher spreads to not be securitized.
clydebot1, sorry about the lack of response. Maybe one of these topics will help:
I hope those threads give you a bit more insight.
Bumping to see if anyone has any feedback.
Not sure the borrowers have much say in where their debt ultimately ends up. I do know that borrowers have definitely had issues with loan servicing/asset management, depending on the servicer. Servicers will only do the bare minimum to monitor their assets, so it can be difficult for borrowers to work with them in general.
Why does this matter to you though? I could be wrong, but it seems like this is an issue for the servicer to worry about and not the lender.
It matters to him because if the servicers are tough to work with then lenders who securitize their loans become less attractive. That means that the OP has to weaken their pricing or structure to win the same deal.
Agreed but cant the lender just find a new servicer?
If CLO's are anything like CMBS- then no.
I work in this space for a debt fund that is a frequent CLO issuer. This definitely comes up a ton with borrowers as a complaint post closing, but the same sponsorship group will overlook those issues when they sign up a new deal a few weeks later (mainly due to recent spread compression)
That being said, the servicing and asset management process isn’t streamlined or standardized in the CLO space yet.
Servicers are notorious for this. However, very few (if any) borrowers will actually walk from a prospective financing package due to post-closing securitization, as most/all loan docs for non-construction financings will permit securitization.
Securitization is definitely a negative. This is a very borrower specific question and depends upon how much higher the spread would be. But, If the borrower is going to a debt fund (vs a bank) most probably they aren't placing a high priority on who holds and services the notes.
You're lending strictly bridge?
As a financing broker, we've had sponsors (and BS lenders) express that borrower's should be weary about debt funds who will consider issuing a CLO post-funding. In other words, we've had certain debt funds who will pitch the fact that they will keep the floater on their balance sheet.
However, there are certain lenders (i.e. Silverpeak) who include language about their option to securitize the loan in their term sheet, but explicitly state that they have an in-house AM/servicing team who will be responsible, as they retain a portion of the loan.
As overtimeRequired stated, the servicing process for CLO's is still a bit of a work-in-progress. However, I think the detriment that a CLO will cause may be a bit overstated, especially if it will save you significant cash with the compressed spread.
What is a balance sheet lender?
banks
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